Cash is not dead. Memo to techies, sharing economy supporters and all other believers in the modern “disruptive economy”: cash is not dead; cash rules, OK! And that includes Prime Minister Malcolm Turnbull. Don’t believe all that talk about the death of cash and the looming advent of the cashless society — it’s still not on its way, judging by the latest data on bank notes from the latest Reserve Bank annual report, released yesterday. That showed an 8% rise in the value of banknotes circulating in the Australian economy in the year to June, 2015. That was after a 7% growth in value in 2013-14 and 6.2% in 2012-13. The RBA said there were 1.3 billion notes in the economy, worth $65.5 billion and the 8% growth was above the long-term growth rate of 6% (itself a high number given all the tosh about the advent of cashless transactions in recent years). That’s not to say cashless banking and payments aren’t here — they are, and growing rapidly and new ideas like Apple Pay and the various tap-and-pay systems are adding to the momentum. — Glenn Dyer

Cash is king. But like a little Aussie bleeder (thanks Norman Gunston), cash is hanging in there.The RBA points out that the high level of growth of banknotes in the economy was driven by high-value notes — specifically the $100 and $50 notes.  The number of bank notes on issue has historically tracked around the rate of growth in nominal GDP, but in 2014-15 nominal GDP grew by just 1.8% and bank notes on issue by 8%, driven by rising demand for the two high denomination notes. In fact the value of notes in the economy has been growing as nominal economic growth has been slowing. That 1.8% figure was the lowest since 1961-62 according to the Bureau of Statistics. But bank notes on issue grew more than three times as fast as nominal GDP, suggesting that consumers fear deflation (real money has a higher value in times of falling prices), or when consumer fears about the future are high, as we saw in the GFC when the bank had to boost the value of bank notes in the economy by 19% in the last quarter of 2008.

Then there’s the so-called black economy it could bigger than thought and this is leading to higher demand for high-value notes, which are easier to use. Or that there is a high level of demand for certain high denomination notes from criminal activity, such as drug dealing. No one knows, and it seems the RBA is as much in the dark as anyone. The 21% rise in the value of bank notes on issue is certainly a big surprise. So much for the cashless society, which seems to be going the same way as the paperless office! — Glenn Dyer

Boon for ScoMo. The RBA annual report had an early Christmas present for the new federal Treasurer, thanks to his predecessor, and the sharp fall in the value of the Aussie dollar in 2014-15, which paid out nicely for the Reserve Bank and the federal government. The RBA’s 2014-15 annual report reveals that thanks to the 11% fall in the value of the dollar (and 17% against the US dollar), the RBA had net earnings in 2014-15 of $6.9 billion. That’s the second largest figure in RBA history after the $8.8 billion in 2008-09 (during the GFC, as the Aussie dollar plunged). That was also a significant rise from 2013-14’s figure of just $442 million, thanks to the impact of the near-parity value of the Aussie dollar with the greenback (and ignoring the $8.8 billion injection from Joe Hockey):

“The fall in the exchange rate has resulted in substantial valuation gains. Part of these were realised as the Bank’s portfolio of foreign reserves turned over, while the unrealised gains are set aside against the risk of future losses or will be realised as relevant assets are sold. Underlying earnings remain low because of low yields on the Bank’s portfolio but, at $832 million, were higher than in the previous year as the Bank’s balance sheet expanded and ADIs began paying fees associated with the Committed Liquidity Facility from the beginning of 2015. The full-year effect of these fees will further boost underlying earnings in 2015-16.”

The RBA said that adding the realised valuation gains to underlying earnings “results in earnings available for distribution of about $3.5 billion. … The remainder of distributable earnings, a sum of about $1.9 billion, will be paid as a dividend to the Commonwealth.” That’s up from $1.24 billion for 2013-14, and a very tasty 50% increase for ScoMo and his budget. — Glenn Dyer

And no currency intervention. The bank said it didn’t not intervene to support the Aussie dollar in 2014-15, despite the currency’s 18% slide against the greenback (from 94 US cents to 77 US cents) and the smaller, 11% drop on a trade-weighted basis (against the currencies of our major trading partners) which helped produce the surge in earnings for the bank. “As with developed market currencies more generally, volatility in the Australian dollar increased from what had been very low levels. However, the bank’s assessment is that liquidity conditions in the Australian dollar market have been adequate and it has not deemed it necessary to support liquidity in the market through its own transactions,” the bank said. — Glenn Dyer

Peter Fray

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Peter Fray
Editor-in-chief of Crikey